TAC is at a 2-year low, indicating high hopes for upcoming profitability increases

Google Inc. (GOOG) finally figured out an answer of what to do with its struggling Motorola Mobility unit -- get rid of it. On Tuesday it announced it would be selling the unit for $2.91B USD to Hong Kong, China-based Lenovo Group, Ltd.'s (HKG: 0992).

I. TAC is Looking Good, Profitability is Strong

That deal overshadowed the earnings for Google, which were delivered after hours on Thursday. Overall, Google saw a substantial rise in revenue, surging from $14.42B USD in Q4 2012 to $16.86B USD in Q4 2013. That beat the expectation of analysts surveyed by Thomson Reuters I/B/E/S, who were expecting $16.75B USD.

The core internet business -- which includes the growing mobile advertising division -- earned $15.7B USD, or roughly 93 percent of the total revenue. Traffic acquisition costs (TAC) -- the fees that Google pays partners for advertising clicks -- were a strong point of the earnings reports. As a percent of revenue, these fees dropped to only 23.5 percent, their lowest level in two years indicating strengthening profitability.

Excluding the income passed on to partners, Google earned $13.6B USD, which bested the $13.4B USD that analysts surveyed byBloomberg expected.

Factoring in certain items, net income (GAAP) was at $4.10B USD ($12.01 USD/share), up roughly 15 percent YoY. That's 1.5 percent less than the $4.16B USD ($12.20 USD/share) that the Thomson Reuters I/B/E/S survey predicted, and 2.0 percent less than the $4.18B USD ($12.25 USD/share) that the Bloomberg-surveyed analysts predicted.

Along with the Dec. 2012 sale of Motorola's set-top box division to Arris (ARRS)for $2.3B USD, that move left Google baring $7.3B USD of the $12.5B USD it paid back in 2011 to acquire the American phonemaker. Motorola has $2.9B USD in cash, but Google lost $2.3B USD so far on unit. That leaves the net cost at $6.7B USD.

Overall financials are definitely headed in the right direction and should look even better in future quarters with the Motorola money-vacuum out of the picture.

But the good news for Google is that it's getting rid of the troubled unit, which saw losses growth 2.5-fold on a year-on-year (YoY) quarterly basis. Google's former headache is now Lenovo's problem to deal with.

Going on without Motorola, Google will look to continue to improve its mobile monetization and now-profitable YouTube video service. As makers of the world's most popular smartphone platform, which runs on roughly four out of every five smartphones sold globally today, Google has tremendous potential for mobile revenue.

Google is also eyeing other near product segments. It's continuing to push wearables, such as its Google Glass Explorer -- commonly referred to as "Google Glasses" -- and smartwatches. Rumors have been floating that Google may end its Nexus branded Android smartphones and tablets, but other rumors have suggested it may up the ante with a Nexus TV instead.

[Image Source: Google/AP]

The Mountain View, Calif.-based software giant is also buying up a number of small robotics firms. I spoke with an executive from a firm not affiliated with Google, but familiar with the purchased firms. They told me that the overall word amongst roboticists is that Google is acting proactively and isn't quiet sure (or at least isn't indicating) where the project is headed yet.

What’s noticeable about the Google results is how little information Google releases compared to many other big tech players, there is almost no information about product revenues or sales, geographical breakdowns, costs centres, etc. Google is like a black box, all you can see is the surface details of gross total figures and only the barest hint of it’s internal commercial activities and performance. I would love to know more, a geographical breakdown of revenues would be really interesting, as would a platform breakdown.

That shows you either know nothing about Google, or you're just trolling. You won't see a product or cost center breakdown, because over 95% of Google's revenue comes from advertising. Google has dozens of products and services, nearly all of which are FREE. Obviously, everything outside of advertising and mobile is operating at a loss if they aren't selling anything.

A regional breakdown isn't useful, either, since Google itself isn't creating ads. Google is clearly a trusted advertising company, so a lack of sales in a region would indicate a poor economic climate, not a failing on Google's part.

Most of those free services may be operating at a loss on paper, but they aren't really losing. Everything Google does is directly related to raising their advertising revenue. So these services that are offered for free indirectly make Google money. The ones that are not significantly increasing ad revenue eventually get axed. Google isn't stupid enough to keep doing something that is not helping the bottom line in some way.

Well, except maybe their forays into robotics. Geeks like robots and billionaire geeks get to play with the coolest ones.

quote: You won't see a product or cost center breakdown, because over 95% of Google's revenue comes from advertising.

That’s true but it’s a bit like saying 95% of the profits at General Motors come from making motor vehicles, true but not very helpful when it comes to understanding a bit more about the business.

Obviously Google is under no obligation to disclose any more information beyond that which it is legally required to do or what share holders might demand but nevertheless personally I would love to know a bit more about it’s business. The sort of questions it would be nice to have answers to are:

What is the breakdown between revenue generated from Desktop/Laptop platforms compared to Phone/Tablet platforms?

How much do large services like YouTube cost to operate and how much revenue does it generate?

What is the breakdown between revenue generated from different mobile platforms?

What is the breakdown between revenue generated in different geographical areas?

If any of that info is available in the public domain and I have just missed it then apologies - just point me in it’s direction.

Google does say this “Google segment revenues from outside of the United States totalled $8.77 billion, representing 56% of total Google segment revenues in the fourth quarter of 2013, compared to 56% in the third quarter of 2013 and 54% in the fourth quarter of 2012. Google segment revenues from the United Kingdom totalled $1.50 billion, representing 10% of total Google segment revenues in the fourth quarter of 2013.” So my reading of that is that at least 54% of Google’s revenues come from the English speaking world. If you add in Canada, the Australasia, Ireland etc then perhaps almost 60% of Google’s income is from the English speaking world. It would be very interesting to see what Google’s revenues from China were.

As for the issue of not using Google products it depends on what you mean by products, if you mean free services I use them as much as the next person, if you mean revenue generating products (i.e stuff that Google sells) then I am assuming nobody on theses forums is a customer of Google.

Your first post implied Google is hiding something, which it is not, as most companies provide similar information without disclosing much else. The information you're asking for is confidential, and generally not available even to employees outside of executive, sales, and marketing staff. Not even Apple, your favorite company, gives that level of detail:

There's another reason why the info is hard to find: Google has too much of it. Apple's 2013 10-K filing was 98 pages highlighting five products. Goolge's is forthcoming, but last year's was 310 pages. Google has WAY to much to report on to get to the level of detail you want.

quote: The information you're asking for is confidential, and generally not available even to employees outside of executive, sales, and marketing staff.

That's my point. Why? It's confidential because Google chooses it to be. Other companies supply more data, the pattern of what data is revealed differs from company to company. Google’s is unusually opaque.

quote: Not even Apple, your favorite company, gives that level of detail:

Apple does break down sales by units sold, revenues by product categories and reports on some (not all) geographical trends.

quote: There's another reason why the info is hard to find: Google has too much of it. Apple's 2013 10-K filing was 98 pages highlighting five products. Goolge's is forthcoming, but last year's was 310 pages. Google has WAY to much to report on to get to the level of detail you want.

But I thought you said in an earlier comment that “over 95% of Google's revenue comes from advertising’, that’s one product. I would just like data on that one product.

As for the notion that reporting such data would strain Google’s meagre data handling resources - are you really telling me that a company whose self declared goal is to organise the world’s data, who can serve up millions of internet searches from a billion web pages in less than a second, that can say precisely how much revenue it gets from the USA and the UK cannot apparently find the resources to report on, say, how much revenue it made in Latina America last quarter?

Why are you being so super defensive about all this? Google keep a great deal of data about their operation very secret, that’s a shame because if they revealed it we could understand their business better. Other companies reveal more data than Google. Is any of that controversial?

Some companies may provide the kind of detail you are asking about but that it not common.

In an era of Sarbane-Oxsley there not much reason to pay the accountants more to give more detail than what is required by the SEC. If investors want more information, it can be had or combined from other sources. But if you don't like it, go buy a share and say something as the next stockholder meeting.